Hicks
As a youngster, I recall asking my father what was the difference between a recession and a depression.
His definition was that a recession was when your neighbor lost his job, and a depression was when you lost your job.
A half century later, armed with a Ph.D. in economics, I don’t think I’ve heard a cleaner definition. This way of thinking about the economy is what most people do, and I don’t blame them.
Our individual experiences inform us a great deal about the world. Still, most of us are smart enough to know that our personal experiences, for good or ill, are not necessarily representative of others.
Even if you have an “average” experience in something, there will be a wide variation among others. So, if you are searching for truth, it is risky to extrapolate from a personal experience to the whole of the population. It is, in the jargon of science, bad epistemology.
Judging the national economy is one area in which individual experience is pretty poor. For example, when one recent survey asked a large sample of Americans if inflation was a problem, nearly everyone said it was, for good reason. Inflation reduces the value of currency, so income and accrued wealth are worth less.
Still, for most Americans, wage growth has largely kept pace with inflation. For very low-income workers and those receiving Social Security, income growth has modestly outpaced inflation. But, most of us keep a closer eye on the price of gasoline or eggs than our paychecks or Social Security. It’ll be a while before we reconcile the changes to both. Still, this survey response made sense.
This same survey also asked if unemployment was a major concern for the U.S. economy. A full 6 in 10 said yes. But, here’s the rub. The U.S. unemployment rate hasn’t been this low in more than 50 years. Though it is possible this survey accessed an unusually uniformed set of Americans, I think something else is going on.
Labor markets in the United States are very strong, Labor Force Participation has rebounded to pre-COVID levels, and the composition of job growth remains pretty consistent. Surely, overall unemployment cannot be the main issue influencing poor feelings about the economy. Something else is happening.
We are in a period of overwhelmingly strong job growth for college graduates. Since the depths of the Great Recession, the U.S. has created more than 17 million net new jobs for college graduates. For everyone else, there are almost a million fewer jobs today than in 2009. I don’t think most Americans, and even fewer elected officials, have really reconciled themselves to this fact.
Even as labor markets are strong, labor demand in the United States remains tightly focused on workers with a college degree or higher. It is important to understand what this does, and does not, mean for the economy. Today, most Americans do not complete college, which means their job prospects are heavily focused on finding jobs vacated by retiring workers.
However, 73% of adults with a bachelor’s degree or higher are in the labor force, but only 57% of adult high school graduates are either working or looking for a job. This is almost surely because job prospects for high school graduates are worse than they were a generation or two ago. This weighs heavily on many families. The issue here is that we can experience low unemployment nationally, but suffer a surprising share of workers who have simply left the formal labor force.
An equally big problem is the geography of those new jobs for college graduates, and how that colors our perception of the economy. For adults without a high school diploma, there are fewer jobs in new or growing occupations. When jobs are available, they are due to job openings in existing businesses. Again, these come primarily from retirements or turnover. Still, I don’t think this is enough to cause 6 out of 10 people to worry about employment in the midst of half century low unemployment rates.
I think the unease about the economy is primarily because the geography of economic opportunity is shrinking. Over the past decade, half of U.S. counties lost population. Nearly all the economic growth occurred in larger cities. So far this century, Indianapolis has seen a whopping 247,300 new jobs, while all the rest of Indiana has seen 9,900 new jobs. That is the same in many states.
This concentration of economic growth and prosperity is fairly new. So, today many middle-class families could have good, secure jobs and a nice home in a good neighborhood. But, over the past 20 years, few new houses have been built in their city. Perhaps a few neighborhoods nearby are now in decline and traditional family homes are now rental properties. In these places, most of your neighbor’s kids left for college and didn’t come back.
It is hard to feel good about that sort of economy, which is the reality across much of the country. In an environment like this, few people will pay attention to national economic data, no matter how clear and honest it is. I’m sympathetic to folks who feel their local economy is doing poorly, even if the national economy is doing quite well.
I’m far less sympathetic about who to blame. Economic conditions in your city or state cannot really be laid at the foot of the U.S. President or a political party. After all we’ve had 12 years of R’s and 11 years of D’s so far this century. No one party is to blame. The real problem for most places will be the set of state and local policies government focuses on.
Economists have a pretty clear set of recommendations, based on serious research over the past several decades. States and cities must make themselves into places people want to live. They must be safe and have good schools (and not just make that claim). Cities need to have decent roads, and some recreational opportunities. And of course, the natural environment also matters. Places with nice weather and stunning views have an advantage. Ironically, the absence of mountains or oceans means that local government services are much more important to migrants.
Despite the strong national economic data, economic growth is concentrated among well-educated people living in a small share of U.S. counties. I believe that is fueling perceptions about the economy. The lesson is clear. If you want your community to thrive, education and quality of life are really the only two routes available.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University.
